China Q3 GDP growth falls to 9.0 pct, outlook gloomy

BEIJING (Reuters) - China's growth rate slowed to 9.0 percent in the third quarter, dragged down by the global credit crisis and a weak property sector, leaving the economy on course for its first year of single-digit expansion since 2002.

The fall in annual gross domestic product growth, from 10.1 percent in the second quarter, confirmed that China cannot decouple from worldwide trends and reinforced expectations that the government will soon ease monetary and fiscal policy.

Annual growth in the first nine months was 9.9 percent, well down from 11.9 percent in all of 2007, the National Bureau of Statistics (NBS) said on Monday.

"I'm looking for slower growth in the fourth quarter because that's when I think the external side will start to show a more negative impact," said Tao Wang, an economist at UBS Securities in Beijing.

Economists had forecast third-quarter growth of 9.7 percent, and the outcome disappointed the Shanghai stock market .SSEC, which fell 0.73 percent in the morning session despite strength elsewhere across Asia.

"A gloomy outlook lies ahead after the third quarter, and concerns about the slowdown now outweigh concerns about inflation," said Chen Jinren, an analyst at Huatai Securities.

It is not possible to pinpoint when gross domestic product last grew more slowly because the NBS does not publish updated quarterly data when it revises its annual GDP figures.

Some economists estimate there was at least one weaker quarter in 2004. However, the last time full-year growth failed to reach double digits was in 2002, when it was 9.1 percent.

HEADWINDS

Interpreting the third quarter's statistics is tougher than usual because Beijing pulled out all the stops to reduce pollution during August's Olympics. This led to extensive factory closures as well as transport and visa curbs that hit output.

Industrial production slowed to 11.4 percent in the year to September, the lowest rate since 2002, suggesting that the economy was losing momentum as the quarter went on.

However, the pace of retail sales and fixed-asset investment growth both accelerated last month, beating forecasts and providing reassurance to policy makers counting on domestic demand to take up the slack from falling exports.

China has been accounting for about a quarter of additional global output in recent years, devouring iron ore, oil and other raw materials, and will almost certainly leapfrog Germany this year to become the world's third-largest economy.

But headwinds have been stiffening.

"The weak global economic environment has definitely had a negative effect on China's own economic growth," the statistics bureau's spokesman, Li Xiaochao, told a news conference.

The closure last week of a big toy company in southern China that employed 6,500 people dramatised the difficulties facing exporters. Half of the firms in the toy sector that sell overseas have gone out of business this year, according to the customs administration.

In addition, the property market is in a swoon due to tight credit and government curbs aimed at preventing the sort of bubbles that have felled the U.S. and British economies.

Real estate accounts for about a quarter of fixed-asset investment, so the repercussions for the construction, metals and power sectors have been severe. Steel and aluminium firms have slashed output because of slumping prices.

EASIER POLICY ON THE WAY

Officials confirmed over the weekend that the government was preparing measures to pump up growth, including tax cuts and stepped-up investment in infrastructure such as railways. Curbs on the real-estate market are already being eased in some cities.

Economists also expect more monetary easing, building on two cuts in interest rates and banks' required reserves since mid-September, as the threat of inflation recedes.

"We have room for policy manoeuvre, including monetary, fiscal and industrial policy," said Li, the NBS spokesman.

Consumer prices rose 4.6 percent in the year to September, down from 4.9 percent in August and a 12-year peak in February of 8.7 percent.

Factory-gate inflation also fell, to 9.1 percent in the year to September from 10.1 percent in August, as oil and commodity prices retreated: the Reuters-Jefferies CRB index .CRB of global raw material prices fell to a four-year low last week.

(Reporting by Jason Subler, Eadie Chen, Simon Rabinovitch, Langi Chiang and Clare Zhang; Writing by Alan Wheatley; Editing by Neil Fullick)